Question

What happens to marginal revenue when total revenue falls?

Answer 1

Marginal revenue (MR) is the change in total revenue from selling one more unit.

• If selling more leads to a drop in total revenue, that means the additional unit is reducing revenue.
• Hence, MR < 0, or negative.

This usually happens in imperfect competition (like monopoly) when a firm has to lower the price significantly to sell more units.